Posts Tagged ‘BIR Form No. 1601E’
By: Garry S. Pagaspas
In another effort to enhance tax compliance in the Philippines, the Bureau of Internal Revenue (BIR) issued Revenue Regulations No. 1-2014 dated December 17, 2013 on submission of alphabetical list or alphalist of employees and list of payees on income payments subject to withholding taxes in the Philippines.
Amendment to Revenue Regulations No. 2-98
Revenue Regulations No. 1-2014 (RR No. 1-2014) was issued to amend Revenue Regulations No. 2-98, as last amended by Revenue Regulations No. 10-2008 on submission of alphabetical list or alphalist of employees and list of payees on income payments subject to withholding taxes in the Philippines. Specifically, RR No. 1-2014 amended Section 2.83.3 of Revenue Regulations No. 2-98 on requirements for the list of payees.
Mandatory Electronic Submission
Under RR No. 1-2014, all withholding agents (regardless of the number of employees and payees, and whether employees or payees are exempt or not) are required to attach an alphabetical list or alphalist as an integral part of the following tax returns
- BIR Form No. 1604-CF or annual information return on compensation and final withholding taxes;
- BIR Form No. 1604-E or annual information return on expanded withholding tax;
- BIR Form No. 1601-E or monthly remittance return on expanded withholding tax;
- BIR Form No. 1601-C or monthly remittance return on withholding tax on compensation;
- BIR Form No. 1601-F or monthly remittance return on final withholding tax
Submission of alphalist of employees or alphalist of payees in the Philippines shall be made under the following modes:
- As an attachment in the electronic filing and payment system (EFPS)
- Through electronic submission using the BIR website address at email@example.com, and
- Through electronic mail (email) at dedicated BIR address using prescribed CSV data file format, the details of which shall be issued in separate revenue issuance.
In case the taxpayer does not have own internet facility or unavailability of commercial establishments with internet connection within the location, the taxpayer may make use of the electronic mail through the e-lounge of the BIR.
Mandatory requirement for tax expense deduction
Submission of alphalist of employees and alphalist of payees in the Philippines that does not conform with the prescribed format resulting to the unsuccessful uploading into the BIR system shall be deemed as not received and shall not qualify as a deductible expense for income tax purposes. Submission of alphalist with income payments lumped into one single amount such as “various employees”, “various payees”, ”PCD payees”, or “Others” are not allowed and deemed as non-compliance.
Effectivity of electronic submission in the Philippines
Manual submission of alphabetical list with less than 10 payees or employees under Revenue Regulations No. 2-98, as amended by Revenue regulations No. 10-2008 for annual information returns or BIR Form No. 1604-CF and BIR Form No. 1604-E shall be discontinued beginning January 31, 2014 and March 1, 2014, respectively, and every year thereafter. RR No. 1-2014 is to take effect within fifteen (15) days from publication. It was published last January 13, 2014 with Manila bulletin.
Garry is a Certified Public Accountant (CPA) and a law degree holder in tax practice for about ten (10) years now helping out taxpayers on tax compliance, tax savings, tax assessments, tax refunds, financial statements audit, and other related professional accounting services. He is presently a frequent speaker of Tax and Accounting Center, Inc. and you may send him mail at garry.pagaspas(@)taxacctgcenter.org.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances. For comments, you may also please send mail at info(@)taxacctgcenter.org, or you may post a question at Tax and Accounting Center Forum and participate therein.
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Withholding tax is the most basic tax type that each and every taxpayer engaged in trade or business or in the practice of profession must learn. Upon registration of their respective business entities, withholding tax type is a must and it may come in three (3) tax types as sub classifications as follows:
- Expanded withholding tax (EWT) or Creditable withholding tax (CWT) under monthly BIR Form No. 1601E and annual BIR Form No. 1604E with Alphalist of Payees;
- Withholding tax on compensation (WC) under monthly BIR Form No. 1601C and part of annual BIR Form No. 1604CF with Alphalist of Employees;
- Final withholding tax (FWT) under monthly BIR Form No. 1601F and part of annual BIR No. 1604CF with Alphalist of Employees/Payees;
To develop a deeper understanding of the withholding tax system in the Philippines, let us discuss some of its basic features.
1. Automatic constitution of resident payor of income as withholding agents.
By force of the law, a Philippine resident payor of specific income payments are mandated by law to withhold, whether he likes it or not. Non-resident foreign corporations and non-resident alien payors are not included because of obvious logical reasons – Philippine government does not have jurisdiction over them, and could not run after in case of non-compliance. Specific items of income payments are enumerated in the regulations and once the payment is made upon such items, withholding taxes applies. Example, if a taxpayer pays a rental for its office space, it is mandated to withhold 5% of the gross rental payment.
2. A system of advance collection of payee’s income tax liability
What is withheld is the income tax liability of the payee upon actual payment or upon accrual. Income tax returns are filed quarterly and annual and under pay-as-you-file system, income taxes are paid upon filing. However, with the withholding tax, the government gets the income tax on the 10th day of the month following the month of payment or accrual, ahead of the quarterly payment of payees income. Example, Company A pays Atty. A professional fees amounting to P100,000 on January 2012 and the applicable withholding tax of 15% or P15,000 was withheld. Atty. A is required to file and pay quarterly income tax (BIR Form No. 1701Q) on April 15, 2012, but, before he could file and pay, the government already collected in advance the P15,000 that was remitted by A Company not later than February 10, 2012 (BIR Form 1601E).
3. Amount withheld is a trust fund for the government
At provided in Section 57(A) of the Tax Code, the taxes deducted and withheld by the withholding agent shall be held as a special fund in trust for the government until paid to the collecting officers. The withholding agent, as trustee of the funds withheld cannot use the funds in any other purpose, but should remit the same to the Bureau of Internal Revenue (BIR) through the authorized agent banks (AABs) or other payment facilities.
4. Amount withheld is creditable or final income tax due of the payees.
Expanded withholding tax rates are carefully studied and crafted to reasonably estimate payee”s income tax liability depending on the industry type and nature of payment. This is the reason why withholding tax rates are varying and is challenging to memorize for proper application. Upon filing of quarterly and/or annual income tax of the payee, the amount withheld will be deducted from its income tax liabilities and there would be fewer amounts due because of the withholding tax duly supported by creditable withholding tax certificates – BIR Form No. 2307/2316. On the other hand, final withholding taxes are the same rates imposed in the Tax Code for specific payments. As such, they constitute full payment of payees income tax and no additional tax liabilities would arise under final withholding tax on top of the amount withheld.
5. Check and balance mechanism
Monthly withholding tax returns of the payor attaches a monthly alphalist of payees (MAP) with the details of the payee and the income payments – the name address of payee, and the amounts of income payment and corresponding tax withheld. When the payee files a quarterly and annual income tax returns, it attaches the summary alphalist of withholding taxes (SAWT) with the details of the payor and the income payment. With these reports, the BIR could easily determine whether or not the payee declared the income payment, or whether or not the payor correctly declared the expense. As such, this becomes an easy tool in the third party information procedures of the BIR to catch up tax evaders.
6. A mandatory requirement for deductibility of an expense.
In effect, Section 34(K) of the tax Code, as amended, provides that if an expense is subject to withholding tax, it will not be allowed as a deduction for income tax unless it could be shown that withholding taxes has been paid to the BIR. This explains why assessment of withholding tax has a dual effect – disallowance of expense deduction in income tax computation for failure to withhold, and assessment for withholding tax liabilities. Upon payment of withholding taxes, the income tax assessment based on failure to withhold is automatically dropped.
7. Exclusive enumeration of items subject to withholding taxes.
Revenue Regulations 2-98, as amended, is the main regulation enumerating the income payments subject to creditable withholding tax. Enumeration of expanded withholding tax therein is exclusive and whatever is not included is deemed not subject to creditable withholding tax. This means to say that as a rule, not all expenses are subject to withholding. Exception to this rule is the rule on Top Twenty Thousand Corporation (TTC) or Top Five Thousand Individuals duly selected and notified as such by the BIR. On top of those enumerated in Revenue Regulations 2-98, as amended, they are mandated to withhold on income payments to regular supplies of goods – 1% or of services – 2%, and from casual purchases amounting to P10,000 in a single transaction.
Failure of the taxpayer to comply the obligation to withhold would expose a taxpayer-agent with the following consequences:
- Non-deductibility of a business expense for income tax computation for failure to withhold until after payment of the withholding tax and related penalties;
- Payment of the basic withholding tax that should have been withheld;
- One-time surcharge of 25%, or 50% for willful neglect or fraudulent filing;
- Interest on 20% on annual basis based on the basic withholding tax that should have been withheld;
- Compromise penalties ranging from P200 to P50,000 based on the amount of basic withholding tax that should have been withheld;
- Or worst, criminal prosecution and imprisonment for willful neglect or fraudulent filing of withholding tax returns
You would not enjoy paying the above penalties, and wasting your hard earned money from your business undertakings and simple ignorance of the above obligation. It’s the proper time now to educate and you have all the time and opportunity to do it before it is too late.
Disclaimer: This article is for general conceptual guidance only and is not a substitute for an expert opinion. Please consult your preferred tax and/or legal consultant for the specific details applicable to your circumstances.
Quality Seminars, Trainings and Workshops. We conduct tax seminars and workshops on withholding tax such as the following:
- Withholding tax, Subjects and Applications - One day program once a month
- Compensation, Computations and Must Know Exemptions - One day program once a month
Tax Management and Compliance Consultancies. With our tax services, we can assist you ensure tax compliance and in the management of such continuing compliance. Proper compliance would bring about tax savings form avoiding being penalized to tax minimization strategies. Likewise, we could assist you in securing a BIR ruling confirming the applicable tax exemptions.(Post viewed 10845 times)